The online marketplace is in a hurry to grow - online and offline - as well as to get into the black. Here's how its founders plan to do it.Kunal Bahl, the cofounder of Snapdeal, loves to personally work on deals. While acquiring a company, even as he works through the books of accounts, the 33-year-old also hunts for chemistry. Almost akin to the goals of courtship, Bahl wants to find companies with promoters who he can work with for years.

Not surprisingly, at least six founders of companies acquired by Snapdeal have stuck around within Snapdeal (See Founders, Keepers). So when the ecommerce major courted the discount-wallet startup FreeCharge, in early 2015, the chemistryhunt was almost filmy. Call it Kunal-calling-Kunal if you will. FreeCharge founder Kunal Shah and Bahl finalised the acquisition in 21 days, often speaking to each other past midnight ( 2:00-3:00 am) and doing early-morning Skype calls (around 4:00 am). They also had clandestine meetings, in three cities — Delhi, Mumbai, Bengaluru — avoiding popular meetup zones frequented either by startup nerds or finance geeks.

Ecommerce startup founders are a close-knit community in India. Arch-rivals are also friends. Last month when Kunal Shah needed help with househunting in Bengaluru (he is shifting house from Mumbai this year), he reached out to Flipkart founder Sachin Bansal, and met him at a Costa Coffee outlet in Koramangla in Bengaluru.

Now, getting back to the chemistry, Bahl and Shah had known each other for ages. Both had started in the discounts coupons business. What Bahl liked about Shah was his work ethic, his ability to take ownership of a process. It also helped that being a company focused on money transactions and discounts offered digitally, FreeCharge always laid a premium on being properly audited. Kunal Shah says: "The formal due diligence only took a few hours."

Surely Bahl loves the deal-making process, tries to keep it simple and keep out finance geeks. And he has done it many times in 2015, having snapped up more than half a dozen companies. Some were online marketplaces like Snapdeal (Exclusively), which helped it expand its domain; whilst others brought in technological heft (See 2015 Was a Big Deal). A 20% stake (now hiked to 42%) in a logistics firm (Gojavas) was a strategic buy. Then there was of course the biggest of them all, the $400 million buyout of FreeCharge.

The year 2015 wasn't only about mergers and acquisitions (M&A). New businesses were launched and funds were raised. FreeCharge launched a payment wallet in September. Bahl adds a surprise punch: "There are other acquisitions which we have not announced yet, because some are too small and some are strategic."

By October 2015, Snapdeal had raised more than a billion dollars within a year. Its valuation touched the $6.5-billion mark, as per a Goldman Sachs October 2015 report, after two successive fundraising deals, first $500 million led by Chinese ecommerce major Alibaba and Taiwanese hardware giant Foxconn and then another yet-to-be confirmed infusion by Ontario Teachers' Pension Plan in September. While it is still way behind Flipkart, which is valued at $15 billion, it is expected to get neck and neck with it in gross merchandise value (value of all goods sold on the platform) by March 2016. Snapdeal's gross merchandise volume (GMV) in August 2015 was roughly $4 billion and it was the same number Flipkart had recorded for last year that ended in March 2015.

Both Flipkart and Snapdeal are expected to be around the $10-billion GMV mark with Flipkart probably ahead by $2 billion, according to various estimates. The message flashing in those numbers is clear: Snapdeal has to step up the pace even as it begins to enter new areas.

Does it have enough capital and management bandwidth to handle the multi-directional expansion into assisted rural-ecommerce, television commerce, omnichannel platform Janus, peer-to-peer platform Shopo (which competes with classified ads platform Quikr) as well as the payment wallet that now competes with Paytm (FreeCharge has 20 million wallets as against Paytm's 1 10 million wallets). That's a question that will ensure the Snapdeal founders have their hands full in 2016. Growth is something they're accustomed to having on their plate, although in November 2015 the top team found themselves grappling with a challenge of a totally different kind.

Everything looked hunkydory, as the Diwali season sales numbers started trickling in from early November. Expectedly, Snapdeal still lagged behind Flipkart and Amazon, but reported an improvement of on-time delivery numbers at 98.6%. "We have lowered our delivery times by 70%," cofounder Rohit Bansal told ET Magazine.

According to a study by Kotak Institutional Equities, Amazon India had the largest number of unique visitors at 200 million, followed by Flipkart at 164 million and then Snapdeal at 109 million.

With the sector predicted to grow at 41% compounded annually, for three years, there's headroom for all three. However, what looked like a straightforward race between Flipkart, Amazon, Paytm and Snapdeal for customer acquisition suddenly changed with a bolt from the blue for Snapdeal. On November 24, the company's brand ambassador Aamir Khan commented on "intolerance" at a media event.

Khan's admission that he and his wife even discussed whether they should settle outside India not only had a backlash against him but also against Snapdeal, which he promoted. As Snapdeal got sucked into the "intolerance-debate" some reports said within 24 hours 85,000 people had uninstalled the Snapdeal app from their phones. That may be a minuscule number compared to total installations of some 10 million on Android, but the bigger worry clearly was the potential damage to the brand. Snapdeal had to wake up to the nether side of stardom. The company distanced itself from Aamir Khan's comments to try and contain the damage. Even today it has not got a clear idea what to do with its brand ambassador. Bahl says, "No comments," when pressed.

Aamir Khan's contract with Snapdeal has not been scrapped (a few days ago, the Indian government had replaced Khan with Amitabh Bachchan as ambassador of the Incredible India campaign).

It's unlikely that we will see another Aamir Khan Snapdeal ad again (the last campaign was in October, prior to the sale season). The company, which is in no mood to be drawn into a discussion on this matter, is clearly grappling with being identified as a relatively successful risk-taking startup brand as well as the flip side — of that well-recognised brand being pilloried on social media when the opportunity arises.

By December, Snapdeal had started reiterating its goals to steer the discussion away from Khan and the intolerance debate more towards its growth plans. It has even planned a megalaunch on Republic Day to take the app to 12 vernacular languages, probably with an eye towards a more nationalist brand association.

Amarendra Singh, professor of marketing at IIM-Calcutta, sees Snapdeal's expansion into different categories — from television commerce and peer-to-peer commerce to the mobile wallet — all targeted at bringing in unique customers.

"Getting different sets of unique customers in different areas will help push up the valuation along with its annual GMV," Singh says. In many ways Snapdeal's $400 million acquisition of FreeCharge was a perfect fit. FreeCharge had a user base that was mostly metro while Snapdeal has a lot of tier II and tier III clientele.

In fact 12% of all of Snapdeal's sales come from the north-eastern states and Aizawl, the capital of Mizoram, is ranked eighth among the top-billed pincodes. They are complementary in age demographics too. The majority of FreeCharge's user base, typically the ones without a credit card, are in the 18-25 age group while the bulk of Snapdeal's users are older, in the 25-35 year range. Singh of IIM-Calcutta says: "The ultimate idea has to be to earn profits, and profits will come out of revenues; the revenues today are way too low compared to the GMV."

Snapdeal had losses of Rs 264 crore on revenues of Rs 168 crore in 2013-14. In 2014-15 its losses went up to Rs 1,350 crore (according to filings by investors in Hong Kong Stock Exchange. Snapdeal is yet to file its results in India). The revenues are largely what Snapdeal earns from thirdparty sellers who sell on their platforms and a large part of the losses would be the discounts that Snapdeal extends. Snapdeal today offers discounts of around Rs 150 crore per month.

If the proportion of the discount worries you, hear out Kunal Shah of FreeCharge: "We did not discover the discount model. In fact it has been used in every business over ages to deliver footfalls. With footfalls you expect more sales. The original FreeCharge model was also about delivering footfalls to different client companies."

This all-or-nothing approach is also in Snapdeal's DNA. In 2011, as a part of its corporate social responsibility (CSR) activity, Snapdeal had sunk 18 hand pumps in a village called Shivnagar in Uttar Pradesh. From zero access to drinking water, Shivnagar suddenly had an abundance of it. In gratitude, they changed the name of the place to Snapdeal.com Nagar. Today, in a similar approach. Snapdeal wants to outdiscount both Flipkart and Amazon, and according to one study last year was seen as cheaper than both.

Bahl insists that there is profitability also at the end of the tunnel. He says Snapdeal wants to be self-sufficient for its capital needs in the medium term and says how it has modelled itself on Chinese ecommerce major Alibaba, which is profitable. To its credit, Snapdeal started late, in 2011, as an ecommerce marketplace that facilitated third parties. This happened even as Flipkart and Amazon metamorphosed into marketplaces themselves. Bahl says: "We have zero inventories. Globally zero-inventory models like Alibaba's and eBay make money. Also like Alibaba has Alipay, a payment wallet, and has built market places around that, similarly we now have FreeCharge and marketplaces like Snapdeal, Shopo and Janus built around it. In India, only we have this combination."

Bikes Sell, but So Does Cow Dung

Sreedhar Prasad, partner — management consulting at KPMG who specialises in ecommerce feels that a clear path to profitability will be a clear differentiator among ecommerce companies. He picks two other factors as critical. "Faster delivery, customer experience and productivity on the app will be the important differentiators."

Snapdeal has put in work on both. It has brought in a lighter version of the app that loads 85% faster and also developed the concept of investing in the first mile. The company actually offers to pick up products from sellers and also lets them operate from their own fulfilment centres, a warehouse of sorts. So the goods get stocked at Snapdeal premises and make for easy shipping even as they remain on the books of the vendors. The delivery is of course, the secret sauce on which ecommerce thrives in India. A study conducted by Bank of America Merrill Lynch early in 2015 showed that when it comes to delivery Flipkart was perceived to be fastest followed by Amazon and then Snapdeal.

Most of the customer complaints at various online consumer fora are now about delivery of fakes instead of authentic products, especially related to electronics. There are plenty of detractors on the internet who troll the founders Bahl and Bansal, both of whom are active on social media platform Twitter. To ensure that sellers do not let down the brand, Snapdeal now has a strict regimen for onboarding sellers and fines for the errant ones.

There is also a code of conduct for them. Prasad also makes the point that eventually every buyer would learn to perceive Snapdeal or Flipkart as marketplaces that connect them with the sellers and do some research on the sellers before buying. They would also prefer to buy from a "trusted" seller close by who delivers fastest. But that is in the future.

"Today, even cow dung manure is available online. Soil for gardening is anyway there and cow dung comes as the fertiliser. The question is who is the seller is and how does a marketplace ensure that the seller does not let your brand down and will deliver consistent customer experience," asks Prasad. The question for Snapdeal is how far is it willing to go to bring in more unique buyers and sellers to its platform. Its omnichannel efforts have extended to selling motorcycles. It has already sold 3 lakh motor-cycles, where the deal fulfilment happens offline, and the booking on Snapdeal.

Future of Ecommerce

Bansal says: "The boundary walls between online and offline retail will collapse and all of us will become just retailers." Marketing consultant Rama Bijapurkar even imagines an ecommerce mall some day in the near future where all ecommerce companies will have their own outlets (see Marketplace Models are Perfect for India) and feels assisted ecommerce can have an impact in cities too. It's just a question of how thin the company is prepared to spread itself. One major plus is of course, that Snapdeal, as of the last week of December, had $500 million in the bank that it had raised in August and had not spent yet.

And November-December showed it can withstand sudden hiccups like the Aamir Khan episode. To Snapdeal's credit it has beefed up its management team. In 2015 it inducted Anand Chandrasekaran as chief product officer from Airtel just before the launch of Shopo. It also hired Hardeep Singh, formerly with Bharti Retail, to head infrastructure. In August Snapdeal brought in Rajiv Mangla from Adobe as its chief technology officer. Then in October Anup Vikal joined as the finance head from Aircel. Bahl says: "As we get into higher orbits we will have to keep beefing up our team. To bring someone on board in the senior team is a big deal for us. Today we are planning for things 12 months out rather than spending time on tactical outcomes of the day."

Having efficient people on board is important. After all, Bahl confessed to getting busy with another startup on the cusp of 2015 and 2016. His daughter was born and Bahl called her the most important startup in his life.

An ecommerce company without a payment wallet is like a car without wheels

Snapdeal chief executive Kunal Bahl is a proud dad of a new-born girl who arrived in this world a day ahead of 2016, and he has been in and out of his office since then. It was tough to get the duo of Bahl and chief operating officer Rohit Bansal together, in the whirlwind of fatherhood and managing the complex entity that ecommerce marketplace Snapdeal has now metamorphosed into. They spoke to ET Magazine separately. Here's a mashup of the interviews:

On the crazy pace of 2015, half a dozen acquisitions, and several new launches

KuBa: I wish I could say that all the acquisitions we made in 2015 were thought through, a part of a blueprint. We do draw up a blueprint every year, but we also have to be open to opportunities and be flexible. But it was our most successful year so far, given that the current form of our business is only four years old. RoBa: For me 2015 was a pretty impressive year. Organisations are perpetually evolving and it's almost a norm that tech companies need to evolve. We have seen this in industry after industry.

On the road ahead

RoBa: We want to make the customer experience more seamless, more frictionless. We want to create the habit among consumers of using our ecosystem — by making it so smooth that it becomes a daily habit.

KuBa: In the medium term, we want to be completely self-sufficient for capital. We are a zero-inventory company, a platform. If you look around, Alibaba is also a platform just as eBay is and they are profitable as against ecommerce players who own inventory. The purpose of building a platform is to create impact and deliver shareholder returns; shareholder returns are very critical.

On the importance of the FreeCharge acquisition

KuBa: An ecommerce company without a payment wallet is like a car without wheels. We have 25 million verified addresses, 15 million credit cards and debit card details and a lot of customers who said they wanted to park money with us. Instead of building a wallet ground up we decided to do it inorganically.

On Snapdeal 2.0

KuBa: The centre of our universe is now FreeCharge and its payment wallet. Around it we have our marketplaces. So we have Snapdeal which is a B2C platform. Then Shopo is a C2C platform that has got two million listings from 35,000 sellers without any marketing support. We have an assisted ecommerce for the rural markets in association with Fino PayTech and we have Janus, an omnichannel offering that combines ecommerce and offline retail. We are also investing in first-mile logistics, picking up merchandise from the seller or getting them to operate from our fulfilment centres.

RoBa: Snapdeal 2.0 started with the new buyer app; we changed everything about the app and then the new payment system. Also by Jan 26 we will be present in 12 vernacular languages. Our delivery time is down by 70% and our on-time delivery rate during the Diwali sale was 98.6%.

On the future of ecommerce

RoBa: We foresee that the boundary between online retail and offline retail will start blurring. You see we have been selling motorcycles. Now the booking is happening online and the fulfilment is happening offline. We are also going omnichannel in a big way and at the same time you see offline retailers going online. The market is huge and India as a market is still underpenetrated.

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